Question

1a. How is the tax treatment of a dividend distribution different from stock redemption?

1b. In general, what circumstance exist when a corporation is making liquidating distribution compared to a non-liquidating distribution?

1c. How are losses treated for tax purposes between both types of distributions?

Answer 1

1a. In case of dividend distribution the company has to pay dividend distribution tax but in case of redemption of stock company has no liability to pay dividend distribution tax.

1b. In case of non liquidation distribution all the proceeds distributed to the share holders are in the form of return on money invested by shareholders in the form of capital and company has to pay tax on those type of the distribution.

But in case of distributions at liquidation it can be said that proceeds received by the shareholders are said in the form of redeeming the share capital no taxes to be paid in that case.

1c. Loss can be carry forward in the case of distributions at non liquidation

Treatment of loss at distribution of non liquidating companies is non levy or non collection of taxes.